Karachi, December 19, 2013 (PPI-OT): Improved Textile sector dynamics to benefit Banking sector
According to Arif Habib Limited,
Improved Textile sector dynamics to uplift Banking sector asset quality Considering on average 16% exposure of the banking sector gross advances to country’s textile sector, the news of granting GSP+ Status can potentially serve as a positive trigger for banks; firstly, in terms of banks’ improved asset quality and, secondly, due to possible reversals and lower provisioning charge-off ahead.
Mid-tiers banks with largest exposure to benefit the most
Arif Habib Limited believes mid-tier banks could stand out as a major beneficiary considering their large exposure in the said sector (~26% of the gross advances) and decent infection ratio of ~29%.
Individual Banks exposure to Textile sector
PKRbn (Dec-12) Gross %shares of Advances Textile Gross Infected Coverage Top-tier Banks 2,218.30 273.7 12% 28% 87% NBP 734.3 72.0 10% 40% 90% HBL 501.8 62.5 12% 27% 81% UBL 430.7 59.9 14% 27% 83% ABL 288.9 41.4 14% 23% 85% MCB 262.6 37.8 14% 14% 100% Mid-tier Banks 802.30 209.2 26% 29% 55% BAFL 211.4 32.9 16% 15% 64% FABL 190.9 27.7 15% 22% 72% BOP 175.9 48.0 27% 58% 36% AKBL 162.9 22.1 14% 51% 68% BAHL 153.5 54.8 36% 4.0% 83% HMB 119.3 56.6 47% 23% 70% Small-tier Banks 166.00 32.5 20% 39% 63% SNBL 83.3 16.7 20% 33% 70% SMBL 64.9 11.7 18% 56% 53% SBL 17.8 4.1 23% 17% 99% Islamic Banks 122.30 27.5 22% 10% 88% MEBL 94.4 24.8 26% 10% 91% BIPL 27.9 2.7 10% 10% 57%
Source: Company Financials, AHL Research
Textile sector’s growth to reduce banks’ concentration risk
Historically, the textile sector has had the highest infection ratio of 31% on average – other sectors that share high infection ratios are electronics, energy, consumer, and agribusiness. Henceforth, a renewed performance in the sector would eventually result in banks accumulating lower non-performing loans (NPLs). By Sep’13, PKR 208.6bn NPLs (Sep’12: PKR 207.4bn) are associated with the textile sector, consuming loans to the tune of PKR 669.6bn (Sep’12: PKR 605.5bn). While an estimated 26% of these loans were to facilitate exports re-financing followed by 36% for working capital, that is almost 62% of the total loan disbursed (see exhibit on the left). Nevertheless, renewed optimism in the sector could potentially result in increased sector recoveries of these loans.
Sector-wise Advances and Non Performing Loans (NPLs)
Sep-12 Sep-13 Infection Infection PKRbn Advances NPLs Ratio Advances NPLs Ratio Textile 605.5 207.4 34% 669.6 208.6 31% Total 3,981.3 617.1 16% 4,210.3 603.8 14% Source: SBP, AHL Research
Banks with higher infection ratio to benefit the most out of possible reversals
To sum-up, investors who are seeking yet another conceivable entry points into banks’, this might be it. Based on latest full-year financials, HMB has the highest loan portfolio exposure to the textile sector at 47%. However, BAHL has the lowest infection ratio for the said sector at 4%. Whereas in terms of recoveries banks with the highest infection ratio, BOP, NBP, SMBL and AKBL, will likely stand out as a possible beneficiary.